Over the past four years, Chicago’s legal sector has accounted for almost 750,000 square feet of negative net absorption despite a robust economy keeping demand for legal services of all types strong.

While much has been written about large law firms shedding space as they reconfigure their offices with open floor plans that appeal to millennial and Generation Z talent, not all are following the same course of action.

Daniel Arends, Colliers International

Finding the right size

At one end of the spectrum, many large law firms are electing to relocate to ultra-efficient trophy towers, justifying the exorbitant construction costs and rent increases associated with building out new space in Class A+ towers by shedding enormous amounts of space from their footprints.

Of the four firms larger than 100,000 square feet that have elected to reduce their space when relocating to newly constructed towers since 2015, all have been able to shed roughly 35.5 percent of their prior footprints on average, with some firms achieving even greater reductions. For example, Holland & Knight attained a 45 percent space reduction in its recently announced move from 105,000 square feet at Citadel Center to 57,000 square feet at 150 North Riverside.

There are also many large law firms choosing to forgo the record-high construction costs of building out new space via relocation scenarios. Instead, they are choosing to renew existing leases while utilizing tenant improvement allowances to reconfigure their spaces into more efficient designs without making wholesale changes. Of the 10 firms in excess of 50,000 square feet that chose this course of action, all achieved an average space reduction of 19.4 percent.

On the other end of the spectrum, smaller law firms (those occupying 25,000 square feet or less) are not following the same approach set by the large firms. Since 2015, smaller law firms have elected to shed office space roughly 15 percent of the time compared to their larger counterparts who shed space 63.5 percent of the time. Perhaps this is because they have less shared space, so the savings from reducing their square footage is not as great. Or perhaps the smaller boutique firms are comfortable with their existing cultures and brands, and thus feel less pressure to recruit.

Refilling vacant spaces

As large firms are likely to continue to conform to the trend of implementing collaborative open spaces while achieving cost savings through space reductions, Chicago’s office market will continue to rely on demand from other sectors and smaller law firms to fill space left behind by large law firms. The quality of the space left behind will largely determine the market’s appetite for the space.

Case in point, nearly all of McDermott Will & Emery’s 250,000-square-foot former block of space at the top of 227 W. Monroe has been leased in the two years since the firm departed due to its picturesque views, quality location and the $35 million amenity package Tishman Speyer added to the building to attract prospective tenants.

On the flip side, the large block vacated by DLA Piper at 203 N. LaSalle has proven difficult to fill over the same period, as the location — on the northern edge of the Loop and farther away from Ogilve Transportation Center and Union Station — is more challenging and the space receives limited natural light.

Location, natural light and building amenities continue to be important as law firms review potential office options. To further emphasize location, 89.6 percent of the firms studied are situated in the transit-oriented West and Central Loop submarkets.

— By Daniel Arends, Principal, Chicago Office Advisory Group, Colliers International. This article originally appeared in the October 2018 issue of Heartland Real Estate Business magazine.